Common Offshoring Terms That You Should Know

Common Offshoring Terms That You Should Know

2BInteractive | August 25, 2017

Are you an SME business owner or perhaps a digital agency who’s considering offshoring some of your operations? Wait? Did you mean offshoring or outsourcing? Nevermind! We’ll answer that! Here are simple definitions to help you understand the concept of offshoring better. Do not forget to bookmark this article so you can use it as reference in case you need a refresher in the future.

Offshoring or outsourcing, which is which?

According to the Industry Commission of Australia, outsourcing is “...an arrangement whereby a contracting agency enters into a contract with a supplier from outside that agency for the provision of goods and/or services which typically have previously been provided internally-not necessarily involving competitive bids.” Simply put, it is a move where a company hires a third-party vendor to complete a specific work. It does not necessarily mean taking the job abroad.
On the other hand, offshoring “…refers to outsourcing of services by workers in another country,” according to the Business Council of Australia. Basically offshoring is a form of outsourcing but instead of hiring a third-party supplier locally, the contract is shifted to another country, usually one that offers lower labour rates from home. One of its main benefits is allowing the company to focus its attention to core operations in-house while being cost-efficient through the allocation of processes/services abroad.

Other fundamental offshoring terms

To help you better understand the industry terms, here are some additional important words that you should keep in mind.
  • Backsourcing. A situation where the outsourced business function is reverted back in-house upon the expiration of an outsourcing arrangement.
  • Back office functions. Administration and support business processes that do not include client-facing functions. Examples include human resources, finance and accounting, procurement, payroll, information technology, and logistics.
  • Baseline. The criteria and relevant parameters you set in identifying your offshoring needs at the early stages of an arrangement. 
  • B2B (Business-to-business).  The exchange of goods, services, and information and other transactions carried between companies.
  • B2C (Business-to-consumer). The exchange of goods, services, and information and other transactions carried between a company and a consumer.
  • B2E (Business-to-employee). An internal business arrangement which allows a company to provide products and services to their employees.
  • Business process. A series of linked tasks that will achieve a business objective, once completed.
  • BPO (Business process outsourcing). The process of contracting the operations and responsibilities of a specific business process to a third-party service provider.
  • Client. An individual, organisation, or company to which professional services are provided in a recurring manner.
  • Cloud computing. The use of computing resources that are delivered as a service over the Internet.
  • Core competencies. A company’s set of unique internal skills and knowledge that define its competitive advantage.
  • Employee fee. The direct salary cost attributable to the hiring of the employee. This usually consists of the basic salary and employee on-costs.
  • End-to-end process. The  fulfilment  of  a  business  process from beginning to end, including data gathering,  processing,  analysis,  generation  of  outputs,  and, implementation.
  • Nearshoring. The moving processes to a nearly adjacent or nearby  country.
  • Onshoring. The moving processes to a location within the same country.
  • Outsourcing agreement. The document where the outsourcing terms and conditions are established.
  • Outsourced service. The business function or activity that is sent to an outsourced service provider.
  • OSP (Outsourced Service Provider).  The entity including a person that is providing services in accordance with an outsourcing agreement. 
  • Telecommuting. An arrangement where the employee works outside the office, often working from home or other suitable location. Also known as working from home or remote working.
Do you know other words that should be included in our glossary? Don’t forget to share them through the comments.